Behavioural Determinants of Foreign Direct Investment

The paper presents a behavioural economics approach to foreign direct investment. Starting from the behavioural finance literature, it uses content analysis based on interviews covering 12 % of the investments abroad made by Portuguese parent firms. The study presents evidence of several behavioural rules (e.g., herding, anchoring, overconfidence, mental accounting) in firms’ location decisions that originate a new set of determinants of FDI flows and complement the neoclassical paradigm. Moreover, it confirms the Heiner model (1983, 1985, 1989) by showing that the higher is the uncertainty faced by decision makers the more frequent is the use of behavioural rules. The central role of uncertainty helps explaining why FDI flows occur more frequently among developed countries